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A STUDY ON
RATIO ANALYSIS AT
AMARARAJA BATTERIES LIMITED (ARBL)
A PROJECT REPORT
Submitted in partial fulfillment of the
requirement for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
Under the Guidance of
S.SUJATHA M.B.A., M.PhilASSISTANT PROFESSOR OF MANAGEMENT STUDIES
SRM UNIVERSITY
BySUNEEL.R
(Reg.No.35080623)
DEPARTMENT OF BUSINESS ADMINISTRATION
SRM UNIVERSITY
YEAR-2010
SCHOOL OF MANAGEMENT
SRM UNIVERSITY
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SRM Nagar, Kattankulathur-603203
Phone: 044-27452270, 27417777, Fax: 044-27453903
[email protected], website:www.srmuniv.ac.in
________________________________________________________________________
BONAFIDE CERTIFICATE
Certified that this project report titled A STUDY ON RATIO ANALYSIS AT
AMARARAJA BATTERIES LIMITEDis the bonafide work of Mr.R.SUNEEL who carried
out the research under my supervision.
Certified further, that to the best of my knowledge the work reported here in does not form
part of any other Project report or dissertation on the basis of which a degree or award was
conferred on an earlier occasion on this or any other candidate.
Signature of the supervisor Signature of the HO
DECLARATION
mailto:[email protected],%20%20website:www.srmuniv.ac.inmailto:[email protected],%20%20website:www.srmuniv.ac.inmailto:[email protected],%20%20website:www.srmuniv.ac.in -
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I hereby declare that the Project Report entitled A STUDY ON RATIO
ANALYSIS AT AMARARAJA BATTERIES LIMITED(ARBL) is a record of independent
research work submitted by me to SRM University, Chennai, for developing the real time
experience as well as award the degree of Master of Business Administration and has been carried
out during the period of my study at SRM UNIVERSITY, Chennai, Under the guidance of
S.SUJATHA, Department of MBA.
PLACE: Chennai (R.SUNEEL)
ACKNOWLEDGEMENT
I would like to express deepest gratitude and thanks to the Dr.JAYASREE SURESH,Head of
the Department for her valuable support in doing this project. She has been a source of
encouragement and guidance in all our endeavors.
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I would like to sincerely acknowledge thanks to Sri C.Ramachandra raju, Finance
Manager of Amararaja Batteries limited, Mr.C.Ravi Costing Manager of Amararaja Batteries
Limited for their moral support during the research work.
I express our profound thanks to S.SUJATHA project guide, for her consistent
encouragement and invaluable suggestion in completing this project, without his effort the
completion of this project would be practically impossible.
It gives me great pleasure to acknowledge my indebtedness to my family Members for
their substantial moral support and encouragement in my studies.
I would like to extend my sincere thanks toMy Dearest Friendsand alsomy classmates
for their unnerving support in the completion of the work.
(R. SUNEEL)
TABLEOFCONTENTS
Chapters
Titleand
Topics
Page
No
1 INTRODUCTION
Introduction12
2 OBJECTIVES&METHODOLOGY
Needofstudy
Scopeof
study
4
5
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Objectivesofstudy
ReviewofLiterature
ResearchMethodology
Limitationsof
study
6
719
20
21
3 COMPANYPROFILE
2229
4 DATAANALYSISANDINTERPRETATION 3060
5 FINDINGS&SUGGESTIONS
Findings
Suggestions
Conclusion
62
63
64
6 Annexure
BIBLOGRAPHY
6571
72
LISTOFTABLES
SI .NO PARTCULARS PAGE.NO
1
2
3
4
5
6
7
8
9
CURRENT RATIO
QUICK RATIO
CASH RATIO
NETWORKING CAPITAL RATIO
DEBT RATIO
DEBT EQUITY RATIO
INTEREST COVERAGE RATIO
TOTAL LIABILITIES RATIO
INVENTORY TURNOVER RATIO
31
33
35
36
37
39
41
42
43
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10
11
12
13
14
15
16
17
18
19
20
21
22
DEBTORS TURNOVER RATIO
FIXED ASSET TURNOVER RATIO
CURRENT ASSET TURNOVER RATIO
TOTAL ASSET TURNOVER RATIO
WORKING CAPITAL TURNOVER RATIO
NET ASSET TURNOVER RATIO
CAPITAL TURNOVER RATIO
CREDITOR TURNOVER RATIO
GROSS PROFIT
NET PROFIT
OPERITING EXPENCES RATIO
RETURN ON INVESTMENT
RETURN ON EQUITY SHARE HOLDER FUND
45
46
48
49
50
51
52
53
54
56
57
59
60
LISTOFCHARTS
SI .NO PARTCULARS PAGE.NO
1
2
3
4
5
6
7
8
9
10
11
12
CURRENT RATIO
QUICK RATIO
CASH RATIO
NETWORKING CAPITAL RATIO
DEBT RATIO
DEBT EQUITY RATIO
INTEREST COVERAGE RATIO
TOTAL LIABILITIES RATIO
INVENTORY TURNOVER RATIO
DEBTORS TURNOVER RATIO
FIXED ASSET TURNOVER RATIO
CURRENT ASSET TURNOVER RATIO
32
34
35
36
38
40
41
42
44
45
47
48
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13
14
15
16
17
18
19
20
21
22
TOTAL ASSET TURNOVER RATIO
WORKING CAPITAL TURNOVER RATIO
NET ASSET TURNOVER RATIO
CAPITAL TURNOVER RATIO
CREDITOR TURNOVER RATIO
GROSS PROFIT
NET PROFIT
OPERITING EXPENCES RATIO
RETURN ON INVESTMENT
RETURN ON EQUITY SHARE HOLDER FUND
49
50
51
52
53
55
56
58
59
60
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INTRODUCTION
ABOUTRATIOANALYSIS
The ratio analysis is the most powerful tool of financial analysis. Several ratios calculated
from the accounting data can be grouped into various classes according to financial activity or
function to be evaluated.
DEFINITION:
The indicate quotient of two mathematical expressions and as The relationship
between two or more things. It evaluates the financial position and performance of the firm.
As started in the beginning many diverse groups of people are interested in analyzing
financial information to indicate the operating and financial efficiency and growth of firm. These
people use ratios to determine those financial characteristics of firm in which they interested with
the help of ratios one can determine.
The ability of the firm to meet its current obligations.
INTRODUCTION
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The extent to which the firm has used its long-term solvency by borrowing funds.
The efficiency with which the firm is utilizing its assets in generating the sales revenue.
The overall operating efficiency and performance of firm.
The information contained in these statements is used by management, creditors,
investors and others to form judgment about the operating performance and financial
position of firm. Uses of financial statement can get further insight about financial strength
and weakness of the firm if they properly analyze information reported in these statements.
Management should be particularly interested in knowing financial strength of the firm to
make their best use and to be able to spot out financial weaknesses of the firm to take
suitable corrective actions. The further plans firm should be laid down in new of the firms
financial strength and weaknesses. Thus financial analysis is the starting point for making
plans before using any sophisticated forecasting and planning procedures. Understanding the
past is a prerequisite for anticipating the future.
Need of study
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NEED OF THE STUDY
The prevalent educational system providing the placement training at an industry being a
part of the curriculum has helped in comparison of theoretical knowledge with practical system. It
has led to note the convergences and divergence between theory and practice.
The study enables us to have access to various facts of the organization. It helps in
understanding the needs for the importance and advantage of materials in the organization, the
study also helps to exposure our minds to the integrated materials management the various
procedures, methods and technique adopted by the organization. The study provides knowledge
about how the theoretical aspects are put in the organization in terms of described below
To pay wages and salaries.
For the purchase of raw materials, spares and components parts.
To incur day-to-day expenses.
To meet selling costs such as packing, advertising.
To provide credit facilities to customers.
To maintain inventories and raw materials, work-in-progress and finished stock.
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Scopeofthestudy
The scope of the study is limited to collecting financial data published in the annual
reports of the company every year. The analysis is done to suggest the possible solutions. The
study is carried out for 4 years (2006 10).
Using the ratio analysis, firms past, present and future performance can be analyzed and
this study has been divided as short term analysis and long term analysis. The firm should
generate enough profits not only to meet the expectations of owner, but also to expansion
activities.
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OBJECTIVESOFSTUDY
1. To study and analyze the financial position of the Company through ratio analysis.
2. To suggest measures for improving the financial performance of organization.
3. To analyze the profitability position of the company.
4. To assess the return on investment.
5. To analyze the asset turnover ratio.
6. To determine the solvency position of company.
7. To suggest measures for effective and efficient usage of inventory.
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REVIEWOFLITERATURE
FINANCIALANALYSIS
Financial analysis is the process of identifying the financial strengths and weakness of the firm.
It is done by establishing relationships between the items of financial statements viz., balance
sheet and profit and loss account. Financial analysis can be undertaken by management of the firm,
viz., owners, creditors, investors and others.
Objectivesofthefinancialanalysis
Analysis of financial statements may be made for a particular purpose in view.
1. To find out the financial stability and soundness of the business enterprise.
2. To assess and evaluate the earning capacity of the business
3. To estimate and evaluate the fixed assets, stock etc., of the concern.
4. To estimate and determine the possibilities of future growth of business.
5. To assess and evaluate the firms capacity and ability to repay short and long term loans
Partiesinterestedinfinancialanalysis
The users of financial analysis can be divided into two broad groups.
Internalusers
1. Financial executives
2. Top management
Externalusers
1. Investors
2. Creditor.
3. Workers
4. Customers
5. Government
6. Public
7. Researchers
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Significanceoffinancialanalysis
Financial analysis serves the following purpose:
Toknow
the
operational
efficiency
of
the
business:
The financial analysis enables the management to find out the overall efficiency of the firm. This will
enable the management to locate the weak Spots of the business and take necessary remedial action.
Helpfulinmeasuringthesolvencyofthefirm:
The financial analysis helps the decision makers in taking appropriate decisions for strengthening the
short-term as well as long-term solvency of the firm.
Comparisonofpastandpresentresults:
Financial statements of the previous years can be compared and the trend regarding various
expenses, purchases, sales, gross profit and net profit can be ascertained.
Helpsinmeasuringtheprofitability:
Financial statements show the gross profit, & net profit.
Interfirmcomparison:
The financial analysis makes it easy to make inter-firm comparison. This comparison can also be made for
various time periods.
BankruptcyandFailure:
Financial statement analysis is significant tool in predicting the bankruptcy and the failure of the business
enterprise. Financial statement analysis accomplishes this through the evaluation of the solvency position.
Helpsinforecasting:
The financial analysis will help in assessing future development by making forecasts and preparing
budgets.
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METHODSOFANALYSIS:
A financial analyst can adopt the following tools for analysis of the financial statements. These are
also termed as methods of financial analysis.
A. Comparative statement analysis
B. Common-size statement analysis
C. Trend analysis
D. Funds flow analysis
E. Ratio analysis
NATUREOFRATIOANALYSIS
Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as "the indicated quotient
of mathematical expression" and as "the relationship between two or more things". A ratio is used as
benchmark for evaluating the financial position and performance of the firm. The relationship between
two accounting figures, expressed mathematically, is known as a financial ratio. Ratio helps to
summarizes large quantities of financial data and to make qualitative judgment about the firm's financial
performance.
The persons interested in the analysis of financial statements can be grouped under three head
owners (or) investors who are desired primarily a basis for estimating earning capacity. Creditors who are
concerned primarily with Liquidity and ability to pay interest and redeem loan within a specified period.
Management is interested in evolving analytical tools that will measure costs, efficiency, liquidity and
profitability with a view to make intelligent decisions.
STANDARDSOFCOMPARISON
The ratio analysis involves comparison for an useful interpretation of the financial statements. A
single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with
some standard. Standards of comparison are:
1. Past Ratios
2. Competitor's Ratios
3. Industry Ratios4. Projected Ratios
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PastRatios:Ratios calculated from the past financial statements of the same firm.
Competitor'sRatios:Ratios of some selected firms, especially the most progressive and successful
competitor at the same point in time.
IndustryRatios:
Ratios of the industry to which the firm belongs.
ProjectedRatios:Ratios developed using the projected financial statements of the same firm.
TIMESERIESANALYSIS
The easiest way to evaluate the performance of a firm is to compare its present ratios with past
ratios. When financial ratios over a period of time are compared, it is known as the time series analysis or
trend analysis. It gives an indication of the direction of change and reflects whether the firm's financialperformance has improved, deteriorated or remind constant over time.
CROSSSECTIONALANALYSIS
Another way to comparison is to compare ratios of one firm with some selected firms in the
industry at the same point in time. This kind of comparison is known as the cross-sectional analysis. It is
more useful to compare the firm's ratios with ratios of a few carefully selected competitors, who have
similar operations.
INDUSTRYANALYSIS
To determine the financial conditions and performance of a firm. Its ratio may be compared with
average ratios of the industry of which the firm is a member. This type of analysis is known as industry
analysis and also it helps to ascertain the financial standing and capability of the firm & other firms in the
industry. Industry ratios are important standards in view of the fact that each industry has its
characteristics which influence the financial and operating relationships.
TYPESOFRATIOS
Management is interested in evaluating every aspect of firm's performance. In view of the requirement of
the various users of ratios, we may classify them into following four important categories:
1. Liquidity Ratio
2. Leverage Ratio
3. Activity Ratio
4. Profitability Ratio
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3.1LiquidityRatio
It is essential for a firm to be able to meet its obligations as they become due. Liquidity Ratios
help in establishing a relationship between cast and other current assets to current obligations to provide a
quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity and also that
it does not have excess liquidity. A very high degree of liquidity is also bad, idle assets earn nothing. The
firm's funds will be unnecessarily tied up in current assets. Therefore it is necessary to strike a proper
balance between high liquidity. Liquidity ratios can be divided into three types:
3.1.1 Current Ratio
3.1.2 Quick Ratio
3.1.3 Cash Ratio
3.1.1
Current
Ratio
Current ratio is an acceptable measure of firms short-term solvency Current assets includes cash
within a year, such as marketable securities, debtors and inventors. Prepaid expenses are also included in
current assets as they represent the payments that will not made by the firm in future. All obligations
maturing within a year are included in current liabilities. These include creditors, bills payable, accrued
expenses, short-term bank loan, income-tax liability in the current year.
The current ratio is a measure of the firm's short term solvency. It indicated the availability of
current assets in rupees for every one rupee of current liability. A current ratio of 2:1 is consideredsatisfactory. The higher the current ratio, the greater the margin of safety; the larger the amount of current
assets in relation to current liabilities, the more the firm's ability to meet its obligations. It is a cured -and
-quick measure of the firm's liquidity.
Current ratio is calculated by dividing current assets and current liabilities.
3.1.2QuickRatio
Quick Ratio establishes a relationship between quick or liquid assets and current liabilities. An
asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value.
Cash is the most liquid asset, other assets that are considered to be relatively liquid asset and included in
quick assets are debtors and bills receivables and marketable securities (temporary quoted investments).
Current Assets
Current Ratio = ________________
Current Liabilities
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Inventories are converted to be liquid. Inventories normally require some time for realizing into
cash; their value also has a tendency to fluctuate. The quick ratio is found out by dividing quick assets by
current liabilities.
Generally, a quick ratio of 1:1 is considered to represent a satisfactory current financial condition.
Quick ratio is a more penetrating test of liquidity than the current ratio, yet it should be used cautiously. A
company with a high value of quick ratio can suffer from the shortage of funds if it has slow- paying,
doubtful and long duration outstanding debtors. A low quick ratio may really be prospering and paying its
current obligation in time.
3.1.3CashRatio
Cash is the most liquid asset; a financial analyst may examine Cash Ratio and its equivalent
current liabilities. Cash and Bank balances and short-term marketable securities are the most liquid assets
of a firm, financial analyst stays look at cash ratio. Trade investment is marketable securities of equivalent
of cash. If the company carries a small amount of cash, there is nothing to be worried about the lack ofcash if the company has reserves borrowing power. Cash Ratio is perhaps the most stringent Measure of
liquidity. Indeed, one can argue that it is overly stringent. Lack of immediate cash may not matter if the
firm stretch its payments or borrow money at short notice.
3.2LEVERAGERATIOS
Financial leverage refers to the use of debt finance while debt capital is a cheaper source of
finance: it is also a riskier source of finance. It helps in assessing the risk arising from the use of debt
capital. Two types of ratios are commonly used to analyze financial leverage.
1. Structural Ratios &
2. Coverage ratios.
Current assets - InventoriesQuick Ratio = _________________________
Current Liabilities
Cash and bank balances + Current Investment
Cash Ratio= --------------------------------------------------------------------
Current Liabilities
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Structural Ratios are based on the proportions of debt and equity in the financial structure of firm.
Coverage Ratios shows the relationship between Debt Servicing, Commitments and the sources
for meeting these burdens.
The short-term creditors like bankers and suppliers of raw material are more concerned with the
firm's current debt-paying ability. On the other hand, long-term creditors like debenture holders, financial
institutions are more concerned with the firm's long-term financial strength. To judge the long-term
financial position of firm, financial leverage ratios are calculated. These ratios indicated mix of funds
provided by owners and lenders.
There should be an appropriate mix of Debt and owner's equity in financing the firm's assets. The
process of magnifying the shareholder's return through the use of Debt is called "financial leverage" or
"financial gearing" or "trading on equity". Leverage Ratios are calculated to measure the financial risk
and the firm's ability of using Debt to share holder's advantage.
Leverage Ratios can be divided into five types.
3.2.1 Debt equity ratio.
3.2.2 Debt ratio.
3.2.3 Interest coverage ratio
3.2.4 Proprietary ratio.
3.2.5 Capital gearing ratio
3.2.1Debtequityratio
It indicates the relationship describing the lenders contribution for each rupee of the owner's
contribution is called debt-equity ratio. Debt equity ratio is directly computed by dividing total debt by
net worth. Lower the debt-equity ratio, higher the degree of protection. A debt-equity ratio of 2:1 is
considered ideal. The debt consists of all short term as well as long-term and equity consists of net worth
plus preference capital plus Deferred Tax Liability.
Long term Debts
Debt Equity Ratio = ----------------------
Share holder funds (Equities)
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3.2.2Debtratio
Several debt ratios may used to analyze the long-term solvency of a firm. The firm may be
interested in knowing the proportion of the interest-bearing debt in the capital structure. It may, therefore,
compute debt ratio by dividing total total debt by capital employed on net assets. Total debt will include
short and long-term borrowings from financial institutions, debentures/bonds, deferred payment
arrangements for buying equipments, bank borrowings, public deposits and any other interest-bearing
loan. Capital employed will include total debt net worth.
3.2.3InterestCoverageRatio
The interest coverage ratio or the time interest earned is used to test the firms debt servicing
capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes by interest
charges. The interest coverage ratio shows the number of times the interest charges are covered by funds
that are ordinarily available for their payment. We can calculate the interest average ratio as earnings
before depreciation, interest and taxes divided by interest.
3.2.4Proprietaryratio
The total shareholder's fund is compared with the total tangible assets of the company. This ratio
indicates the general financial strength of concern. It is a test of the soundness of financial structure of the
concern. The ratio is of great significance to creditors since it enables them to find out the proportion of
share holders funds in the total investment of business.
Debt
Debt Ratio = ----------
Equity
EBIT
Interest Coverage ratio = ---------------
Interest
Net worth
Proprietary Ratio = -------------------------------------- x 100
Total tan ible assets
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3.2.5Capitalgearingratio:
This ratio makes an analysis of capital structure of firm. The ratio shows relationship between
equity share capital and the fixed cost bearing i.e., preference share capital and debentures.
3.3ACTIVITYRATIOS
Turnover ratios also referred to as activity ratios or asset management ratios, measure how
efficiently the assets are employed by a firm. These ratios are based on the relationship between the level
of activity, represented by sales or cost of goods sold and levels of various assets. The improvement
turnover ratios are inventory turnover, average collection period, receivable turn over, fixed assets
turnover and total assets turnover.
Activity ratios are employed to evaluate the efficiency with which the firm manages and utilize its assets.
These ratios are also called turnover ratios because they indicate the speed with which assets are being
converted or turned over into sales. Activity ratios thus involve a relationship between sales and assets. A
proper balance between sales and assets generally reflects that asset utilization.
Activityratiosaredividedintofourtypes:
3.3.1 Total capital turnover ratio
3.3.2 Working capital turnover ratio
3.3.3 Fixed assets turnover ratio
3.3.4 Stock turnover ratio
3.3.1Totalcapitalturnoverratio:This ratio expresses relationship between the amounts invested
in this assets and the resulting in terms of sales. This is calculated by dividing the net sales by total sales.
The higher ratio means better utilization and vice-versa.
Some analysts like to compute the total assets turnover in addition to or instead of net assets
turnover. This ratio shows the firm's ability in generating sales from all financial resources committed to
total assets.
Equity capital
Capital gearing ratio = -----------------------------------------------
P.S capital +Debentures +Loans
Sales
Total assets turnover = ----------------------------
Ca ital em lo ed.
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3.3.2 Working capital turnover ratio: This ratio measures the relationship between working
capital and sales. The ratio shows the number of times the working capital results in sales. Working
capital as usual is the excess of current assets over current liabilities. The following formula is used to
measure the ratio:
3.3.3Fixedassetturnoverratio:The firm may which to know its efficiency of utilizing fixed
assets and current assets separately. The use of depreciated value of fixed assets in computing the fixed
assets turnover may render comparison of firm's performance over period or with other firms.
The ratio is supposed to measure the efficiency with which fixed assets employed a high ratio
indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of assets.
However, in interpreting this ratio, one caution should be borne in mind, when the fixed assets of firm are
old and substantially depreciated, the fixed assets turnover ratio tends to be high because the denominator
of ratio is very low
3.3.4Stockturnoverratio
Stock turnover ratio indicates the efficiency of firm in producing and selling its product. It is
calculated by dividing the cost of goods sold by the average stock. It measures how fast the inventory is
moving through the firm and generating sales.
The stock turnover ratio reflects the efficiency of inventory management. The higher the ratio,
the more efficient the management of inventories and vice versa .However, this may not always be true.
A high inventory turnover may be caused by a low level of inventory which may result if frequent stock
outs and loss of sales and customer goodwill.
Sales
Working capital turnover ratio = -------------------------------
Working capital
Net sales
Fixed asset turnover ratio = -------------------------
Fixed assets
Cost of goods sold
Stock turnover ratio = ------------------------------
Average stock
Opening stock + Closing stock
Average stock = --------------------------------------------
2
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3.4PROFITABILITYRATIOS
A company should earn profits to survive and grow over a long period of time. Profits are
essential but it would be wrong to assume that every action initiated by management of a company should
be aimed at maximizing profits. Profit is the difference between revenues and expenses over a period of
time.
Profit is the ultimate 'output' of a company and it will have no future if it fails to make sufficient
profits. The financial manager should continuously evaluate the efficiency of company in terms of profits.
The profitability ratios are calculated to measure the operating efficiency of company. Creditors want to
get interest and repayment of principal regularly. Owners want to get a required rate of return on their
investment.
Generally, two major types of profitability ratios are calculated:
Profitability in relation to sales
Profitability in relation to investment
ProfitabilityRatioscanbedividedintosixtypes:
3.4.1 Gross profit ratio
3.4.2 Operating profit ratio
3.4.3 Net profit ratio
3.4.4 Return on investment
3.4.5 Earns per share
3.4.6 Operating expenses ratio
3.4.1Grossprofitratio
First profitability ratio in relation to sales is the gross profit margin the gross profit marginreflects.
The efficiency with which management produces each unit of product. This ratio indicates the
average spread between the cost of goods sold and the sales revenue. A high gross profit margin is a sign
of good management. A gross margin ratio may increase due to any of following factors: higher sales
prices cost of goods sold remaining constant, lower cost of goods sold, sales prices remaining constant. A
low gross profit margin may reflect higher cost of goods sold due to firm's inability to purchase raw
materials at favorable terms, inefficient utilization of plant and machinery resulting in higher cost of
production or due to fall in prices in market.
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This ratio shows the margin left after meeting manufacturing costs. It measures the efficiency of
production as well as pricing. To analyze the factors underlying the variation in gross profit margin, the
proportion of various elements of cost (Labor, materials and manufacturing overheads) to sale may
studied in detail.
3.4.2Operatingprofitratio
This ratio expresses the relationship between operating profit and sales. It is worked out by
dividing operating profit by net sales. With the help of this ratio, one can judge the managerial efficiencywhich may not be reflected in the net profit ratio.
3.4.3Netprofitratio
Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross
profit. Net profit margin ratio established a relationship between net profit and sales and indicates
management's efficiency in manufacturing, administering and selling products.
This ratio also indicates the firm's capacity to withstand adverse economic conditions. A firm with
a high net margin ratio would be in an advantageous position to survive in the face of falling selling
prices, rising costs of production or declining demand for product
This ratio shows the earning left for share holders as a percentage of net sales. It measures
overall efficiency of production, administration, selling, financing. Pricing and tax management. Jointly
considered, the gross and net profit margin ratios provide a valuable understanding of the cost and profit
structure of the firm and enable the analyst to identify the sources of business efficiency / inefficiency.
Gross profit
Gross profit ratio = ------------------------x 100
Net sales
Operating profit
Operating profit ratio = ---------------------------x 100
Net sales
Net Profit
Net Profit Ratio = --------------------------- x 100
Net sales
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3.4.4Returnoninvestment:This is one of the most important profitability ratios. It indicates the
relation of net profit with capital employed in business. Net profit for calculating return of investment
will mean the net profit before interest, tax, and dividend. Capital employed means long term funds.
3.4.5Earningspershare
This ratio is computed by earning available to equity share holders by the total amount of equity
share outstanding. It reveals the amount of period earnings after taxes which occur to each equity share.
This ratio is an important index because it indicates whether the wealth of each share holder on a per
share basis as changed over the period.
3.4.6Operatingexpensesratio
It explains the changes in the profit margin ratio. A higher operating expenses ratio is unfavorable
since it will leave a small amount of operating income to meet interest, dividends. Operating expenses
ratio is a yardstick of operating efficiency, but it should be used cautiously. It is affected by a number of
factors such as external uncontrollable factors, internal factors. This ratio is computed by dividing
operating expenses by sales. Operating expenses equal cost of goods sold plus selling expenses and
general administrative expenses by sales.
E.B.I.T
Return on investment = ---------------------------------------- x 100
Capital employed
Net profit
Earnings per share = ------------------------------------ x 100
Number of equity shares
Operating expenses
Operating expenses ratio = ----------------------------- x 100
Sales
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ResearchMethodology
ResearchDesign
In view of the objects of the study listed above an exploratory research design has been
adopted. Exploratory research is one which is largely interprets and already available information
and it lays particular emphasis on analysis and interpretation of the existing and available
information.
To know the financial status of the company.
To know the credit worthiness of the company.
To offer suggestions based on research finding.
DataCollectionMethods
PrimaryData
Information collected from internal guide and finance manager. Primary data is first hand
information.
SecondaryData
Company balance sheet and profit and loss account. secondary data is second hand
information.
DataCollectionTools
To analyze the data acquire from the secondary sources Ratio AnalysisThe scope of the
study is defined below in terms of concepts adopted and period under focus.
First the study of Ratio Analysis is confined only to the Amarraja Batteries Limited.
Secondly the study is based on the annual reports of the company for a period of 4 years
from 2006-07 to 2009-10 the reason for restricting the study to this period is due time constraint.
LIMITATIONS
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The study was limited to only four years Financial Data.
The study is purely based on secondary data which were taken primarily from
Published annual reports of Amararaja batteries Ltd.,
There is no set industry standard for comparison and hence the inference is made
on general standards.
The ratio is calculated from past financial statements and these are not indicators of
future.
The study is based on only on the past records.
Non availability of required data to analysis the performance.
The short span of the time provided also one of limitations.
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Company profile
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COMPANYPROFILE
Amara Raja Batteries (ARBL) incorporated under the companies Act, 1956 in 13 th
February 1985, and converted into public Limited Company on 6thSeptember 1990.
The chairman and Managing Director of the company is Sri Gala Ramachandra Naidu,
ARBL is a first company in India, which manufactures Values regulated Lead Acid (VRLA)
Batteries. The main objectives of the company are a manufacturing of good quality of Sealed
Maintenance Free (SMF) acid batteries. The company is setting up to Rs.1, 920 lakhs plant is in
185 acres in Karakambadi village, Renigunta Mandal. The project site is notified under B
category.
The company has the clear-cut policy of direct selling without any intermediate. So they
have set up six branches and are operated by corporate operations office located in Chennai. The
company has virtual monopoly in higher A.H.(Amp Hour) rating Market its product VRLA . It is
also having the facility for industrial and automotive batteries.
Amara Raja is 5 S Company and its aim are to improve the work place environment by
using 5S techniques which is A systematic and rational approach to workplace organization and
methodical house keeping with a sense of purpose, consisting of the following five elements
CULTURE AND ENVIRONMENT
Amara Raja is putting a number of HRD initiatives to foster a spirit of togetherness and a
culture of meritocracy. Involving employees at all levels in building organizational
support plans and in evolving our vision for the organization.
ARBL encourages initiative and growth of young talent allows the organization to develop
innovation solution and ideas.
Benchmark pollution control measures, energy conversation measures, waste reduction
schemes, massive green belt development programs, employee health monitoring and
industrial safety programs have helped ARBL to take further environment management
program.
Amara Raja has now targeted to secure the ISO 14001 certification.
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QUALITY POLICY
ARBLs main aim is to achieve customer satisfaction through the collective
commitment of employees in design; manufacture and marketing of reliable power systems,
batteries, allied products and services.
To accomplish above, ARBL focus on
Establishing superior specifications for our products and processes.
Employing state-of-the-art technologies and robust design principles.
Striving for continuous improvements in process and product quality.
Implementing methods and techniques to monitor quality levels.
Providing prompt after sales service.
RESEARCH & DEVELOPMENT
Specific areas in which the company carries out R&D are;
New product development.
Process technology up gradation.
Application engineering for new market place.
Quality improvement.
Benefits derived as a result of above R&D,
Developed 4v/200 AH batteries.
Design optimization of higher AH batteries for DOT application.
Design optimization of batteries 92v/1285 AH for TL/AC-Railway application.
Formation cycle optimization results in reduced duration and rejection.
Chemist curing cycle optimization.
Manufacture of automobile battery for four-wheeler vehicles.
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FUTURE PLAN OF ACTION
Commercialization of motorcycle batteries.
Development of new range high integrity VRLA cell design.
Establishment of product for new application segment.
Studies on paste additives to enhance the battery performance.
In-depth evaluation of metal surface treatment chemical to reduce the process cycle time.
Validating alternative grades of propylene to conserve energy and to improve productivity.
MILE STONES
YEAR Mile stone
1997 100 crores turnover
1997 ISO-9001 Accreditation
1999 S-9000 Accreditation
2002 SO-14001 Certification
AWARDS
The spirit of Excellence- Awarded by academy of fine arts, Tirupati.
Best Entrepreneur of the year 1998-awarded by Hyderabad Management
Association.
Industrial Economist Business Excellence Award 1991- Awarded by the industrial
Economist, Chennai.
Excellence Award-by institution of economic studies (ES), New Delhi.
Udyog Rattan Award- by institution of economic studies, New Delhi.
QI CERTIFICATE 2002 - By FORD Company
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AMARA RAJA GROUP OF COMPANIES
AMARA RAJA POWER SYSTEMS PRIVATE Ltd. (ARPSL), Karakambadi,
Tirupati.
MANGAL PRECISION PRODUCTS PRIVATE Ltd1. (MPPL1), Karakambadi,
Tirupati.
MANGAL PRECISION PRODUCTS PRIVATE Ltd2. (MPPL2), Petamitta, Chittoor.
AMARA RAJA ELECTRONICS PRIVATE LIMITED (AREPL), Dighavamgham,
Chittoor.
GALLA FOODS PRIVATE LIMITED (GFPL), Puthalapattu Mandal, Chittoor.
This ratio is calculated by dividing sales in to current assets. This ratio expressed the
number of times current assets are being turn over in stated period. This ratio shows how well
the current assets are being used in business. The higher ratio is showing that better utilization
of the current assets another a low ratio indicated that current assets are not being efficiently
utilized.
INDUSTRIAL BATTERY DIVISION (IBD)
Amara Raja has become the benchmark in the manufacturer of industrial batteries. India is
one of the largest and fastest growth markets for industrial batteries in the world. Amara Raja is
leading in the front, with an 80% market share is stand by VRAL batteries point of view. It is also
having the facility for production plastic components.
ARBL id the first company in India to manufacture VRLA (SMF) Batteries. The initial
investment of the company has Rs.1920 lakhs; the total land is around 18 acres in Karambadi
village, Renigunta Mandal. The project site is notified under B category.
Capacity
The capacity per the year 2005-2006 of IBD is 3, 70,000 cells per annum.
Products
Amara Raja being the first entrant in this industry and has the privilege of pioneering VRLA
technology in India.
Amara Raja has established itself as a reliable supplier of high quality products to major
segments like Telecom, Railways and power.
2. PLATE PREPARATION
Using lead oxide production in earlier stage positive and negative paste is prepared with
addition of sulphuric acid and water. These pastes are applied to respective grids using industrial
fasting machines.
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3. CALL ASSEMBLY
Here positive and negative grids are separated by a sheet of fibreglass mat bush bars are
welded and as assembled into a jar or container to form battery cells. Then these cells are
assembled according to the customers specification into battery sets or systems.
4. FORMATION
In this process cells are filled with the electrolyte (surphuric acid) and then the set is
charged and discharged repeatedly, after final charging the battery comes out ready to be used.
Competitors
The Major competitors for Amara Raja Batteries are Exude industries Ltd, and GNB.
AUTOMOTIVE BATTERY DIVISION (ABD)
ARBL has inaugurated its new automotive plant at Karakambadi in Tirupati on September
24th, 2001. This plan is a part of the most completely integrated battery manufacturing facility in
India with all critical components, including plastics sourced in-house from existing facilities on
site. In this project, Amara Rajas strategic alliance partners Johnson Control Inc., of USA have
closely worked technology and plant engineering. It is also having the facility for producing
plastic components required for automotive batteries.
Capacity
With an existing production capacity of 5 lakhs units of automotive batteries, the new
Greenfield plant will now be able to produce 1 million batteries per annum. This is the first phase
in the enhancement of Amara Rajas production capacity, for this the company has invested Rs.45
crores and the next phase, at an additional cost of Rs.25 crores, for this the production capacity
will be increase to 2 million units and the company has estimated to complete around 3 years,
after that ARBL will become the single largest battery of manufacturer in Asia. The fiscal year
2005-2006s capacity Of ABD is 2.2 million numbers of batteries per year.
Products
The products of ABD are
Amaron Hi-way
Amaron Harvest
Amaron shield
Amaron Highlife
The plastic products of ABD arejars and jar covers.
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Customers
ARBL has prestigious OEM (Original Equipment Manufacture) clients like FORD,
GENERAL MOTORS, DAEWOO MOTORS, MERCEDES BENZ, DAIMLER CHRYSLER,
MARUTI UDYOG LTD., premier Auto Ltd., and recent acquired a preference supplier alliance
with ASHOK LEYLAND, HINDUSTAN MOTORS, TELCO, MAHINDRA & MAHINDRA and
SWARAJ MAZDA.
COMPETITORS
EXIDE
PRESTOLITE
AMCO.
MAJOR USERS
1. RAILWAYS
Train lighting air conditioning, diesel engine starting, signaling systems, control
systems, emergency breaking systems, and telecommunications.
2. TELECOMMUNICATION
Central office power plants, microwave repeaters station, RAX in public building,
emergency lighting system at airports, fire alarm system etc.,
3. POWER SYSTEMS
Switch gear control systems, powerhouse control systems, rural street lighting etc.
4. UPS SYSTEM
Back up power to computers in progress control systems in industry etc.
5. TRACTION
Forklift trucks, earth moving machinery, mining locomotives and road vehicles etc.
6. PETROCHEMICALSOffshare and noshore oil exploration lighting systems, security systems etc.
7. DEFENCE
Defence communication, aircraft and helicopter ground starting, stationary and mobile
diesel engine starting etc.
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PRODUCTION PROCESS
The process for the production of lead acid batteries consists essentially of five operations
described below
1. GRID CASTING
In the process grids to hold the active materials are made. Battery grids are produced using
microprocessor-casting machines with patented alloys. Different sizes of moulds are used to get
the required size of grids.
2. PLATE PREPARATION
Using lead oxide production in earlier stage positive and negative paste is prepared with
addition of sulphuric acid and water. These pastes are applied to respective grids using industrial
fasting machines.
3. CALL ASSEMBLY
Here positive and negative grids are separated by a sheet of fibreglass mat bush bars are
welded and as assembled into a jar or container to form battery cells. Then these cells are
assembled according to the customers specification into battery sets or systems.
4. FORMATION
In this process cells are filled with the electrolyte (surphuric acid) and then the set is
charged and discharged repeatedly, after final charging the battery comes out ready to be used.
5. TESTING & INSPECTION
Testing the battery is discharged to the customer it is tested for quality specifications.
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Data analysis &
Interpretation
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DATAANALYSISANDINTERPRETATIONS
4.1LIQUIDITYRATIOS
4.1.1 CURRENT RATIO
The ratio between all current assets and all current liabilities; another way of expressing
liquidity. It is a measure of the firms short-term solvency. It indicates the availability of current
assets in rupees for every one rupee of current liability. A ratio of greater than one means that the
firm has more current assets than current claims against them.
Table4.1.1Currentratio
S.No
Year
CURRENTASSETSCURRENT
LIABILITIESCURRENTRATIO
1.200607 1,612,642,497 638,958,266 2.52
2.200708 2,280,704,176 1,181,003,846 1.93
3.
200809 3,500,193,294 1,312,272,610 2.67
4.
200910 5,975,961,025 2,020,744,952 2.96
Current AssetsCurrent ratio = -----------------------------------------
Current Liabilities
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Interpr
decreas
the yea
in the y
0.
1.
2.
etation:
The standa
ed to 1.93
r 2009 and
ear 2008.
200
2.
d norm fo
uring the
it has incre
o the ratio
607
2
Gr
current rat
ear 2007 a
ased to 2.9
was satisfa
200708
1.93
aph4.1.1C
io is 2:1. D
d increase
6 in the ye
ctory.
20
urrentrati
uring the y
d to 2.67 i
r 2010. T
0809
.67
ar 2006 th
2008 and
e ratio ab
200910
2.96
e ratio is 2.
t is increas
ve was sta
52 and it h
ed to 2.67 i
dard exce
s
n
t
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4.1.2.Quickratio
Quick ratio establishes a relationship between quick, or liquid, assets and current liabilities. An
asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value.
Table4.1.2QuickRatio
S.NO YearQUICKASSETS CURRENTLIABILITIES QUICKRATIO
1 200607 1,171,683,584 638,958,266 1.83
2 200708 1,708,741,955 1,181,003,846 1.45
3.200809 2,578,479,879 1,312,272,610 1.96
4. 2009104,032,625,321 2,020,744,952 1.99
Current Assets Inventories
Quick Ratio = _______________
Current liabilities
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Interpr
1.83 fr
year 2
standar
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
tation:
he standar
m 2.45. T
09 and th
norm so t
200607
norm for
hen, it dec
n it increa
he ratio wa
2007
Gr
the quick
eased to 1.
sed to 1.9
s satisfacto
8 20
ph4.1.2
Q
atio is 1:1.
45 in the y
in the ye
y.
0809
ickRatio
Quick rati
ear 2008.
r 2010.
200910
o is decrea
nd it has
However t
sed in the
increased t
he ratio w
ear 2007
1.96 in t
s above t
o
e
e
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4.1.3.
S.
3
Interpr
I
quick
Market
ashratio
O
.
.
tation:
all the ab
atio is 1:
ble Securi
: The ratio
Year
200607
200708
200809
200910
ove years t
the com
ies.
0
0.05
0.1
0.15
0.2
0.25
0.3
Cash
between c
Tabl
CAS
BA
169,121,
205,212,
256,000,
511,453,
Gr
he absolute
any is fai
200607
Ca
atio = __
C
sh plus ma
e4.1.3Cash
&BANK
ANCES
827
363
280
739
ph4.1.3Ca
quick rati
ed in kee
200708
h & Bank
_ _______
rrent liabilit
rketable se
Ratio
C
LIA
638,95
1,181,00
1,312,27
2,020,74
shRatio
is very lo
ing suffic
200809
alances
____
ies
urities and
RRENT
BILITIES
8,266
3,846
,610
,952
. The sta
ent Cash
200910
current lia
CA
dard norm
& Bank
ilities.
H RATIO
0.26
0.17
0.20
.25
for absolu
alances a
e
d
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4 1 4
liabiliti
Interpr
2007.
to 0.61i
NET WOR
es excludin
S.NO
1
2
3
4
tation:
Net
rom that
n 2010 but
Net w
RKING CA
g short-ter
Ta
Year
200607
200708
200809
200910
Working
ear the rati
condition
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
rking capi
APITAL RA
bank borr
ble4.1.4Ne
NETWO
CAPI 973,6
1,099,7
2,187,9
3,955,21
Graph4.1.
apital ratio
o increased
f business
200607
al ratio =
ATIO
: The
owing is ca
tworkingc
RKING
AL4,231
0,330
0,684
,073 6,5
Networki
is 0.45 in
to 0.50 in
orking ca
200708
____
Ne
difference
lled net wo
pitalratio
,935,207,7
,191,397,0
,817,892,8
01,134,460
gcapitalra
006 but in
2008 and f
ital is not
200809
Net worki
________
t assets
etween cu
rking capit
NE
CAP14
06
62
0
io
reased to
llowed in
hortage.
200910
g capital
__
rrent asset
l or net cu
WORKING
ITALRATI0.50
0.50
0.57
.61
.50 in the
009 also a
and curre
rent assets.
ext year i.e
nd increase
t
.
.,
d
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4.2LEVERAGERATIOS
4.2.1DebtRatio
If the firm may be Interested in knowing the proportion of the interest bearing debt
in the capital structure.
Table4.2.1Debtratio
S.No Year
TOTAL DEBT
TOTAL
DEBT + NET
WORTH
DEBT RATIO
1.200607 233,058,880 2,039,907,551 0.11
2.200708 378,672,427 2,391,525,347 0.16
3.200809 1,407,083,880 3,843,741,557 0.37
4.
200910 3,162,620,560 3,493,635,030 1.10
Total Debt
Debt ratio = -----------------------------------------
Total Debt + Net Worth
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Interpr
T
year 2
increas
conclu
collecti
etation:
is ratio gi
06 it incr
d to 0.37
e that the
on of debt.
0.
0.
0.
0.
1.
es results
ased to 0.
& 1.10 in
company
0
2
4
6
8
1
2
20060
0.11
Gr
relating to
11 & 0.16
he year 20
s depende
7 2007
0.16
ph4.2.1D
the capital
in the co
09& 2010.
ce on de
8 2008
0.3
btratio
structure o
responding
From the
t is increa
09 2009
1.
f a firm. D
years 200
above in fl
sing. It is
10
ebt ratio is
7 & 2008.
uctuating t
not better
0.08 in t
Again it
rend we ca
position i
e
s
n
n
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4.2.2Debtequityratio
Debt equity ratio indicates the relationship describing the lenders contribution for each
rupee of the owners contribution is called debt- equity ratio. Debt equity ratio is computed bydividing Long term Liabilities divided by Equity. Lower debt equity ratio higher the degree of
protection. A debt-equity ratio of 2:1 is considered ideal.
Table4.2.2Debtequityratio
S.No Year
TOTALDEBTNETWORTH D.E.RATIO
1.2006
07
233,058,880
1,806,848,671
0.13
2.200708 378,672,427 2,012,852,920 0.19
3.200809 1,407,083,880 2,436,657,677 0.58
4.
200910 3,162,620,560 3,331,014,470 0.95
LONG TERM LIABILITIES
Debt equity ratio = -----------------------------------------
EQUITY
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Interpr
Th
theyea
therati
fundis
etation:
eratiogiv
r2006
and
ohasincre
increasing.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
sresultsr
itincrease
asedto0.5
200607
0.13
Graph
latingtot
to
0.13
&
8&0.95.
2007
0.1
4.2.2Debt
ecapitals
0.19in
the
ecancon
08
9
equityrati
tructureof
year2007
cludethat
00809
0.58
afirm.De
and2008.
I
hecompa
200910
0.95
tequityra
nthe
year
ydepends
tiois0.09i
009&
201
onthede
n
0
t
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4.2.3I
covere
S.N
1
2
3
4
Interpr
94.76 i
year 20
interest
4.2.4T
TERESTC
by funds t
Y
20
20
20
20
tation: Int
the year 2
09 and it
ed to inves
TALLIABI
I
VERAGE
hat are ordi
ar
E
607
708
809
910
1
erest cover
007. But, i
gain decre
the mone
ITIESRATI
nterest cov
ATIO: The
narily avail
Table4
IT
137,259,58
386,899,73
742,908,74
,588,690,2
Graph
age ratio i
is decreas
ased to 12.
in this co
O
0
20
40
60
80
100
2006
erage ratio
ratio show
able for th
.2.3Interest
INTER
3
8 1
1 3
99 12
4.2.3Inter
07.56 in t
d to 28.80
9 in the
pany.
7 200708
= __
the numb
ir payment
coverager
ST
,448,427
,435,515
,924,293
9,308,874
stCoverag
he year 20
in the year
ear 2010.
200809
________
In
r of times
.
tio
I.C.RAT
ratio
6. It is inc
2008 and d
n this posi
00910
BIT
_________
erest
the interes
IO
94.76
28.80
24.02
12.29
reased aut
ecreased to
ion outsid
charges a
matically
24.02 in t
investors
e
o
e
s
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T
S.N
1
2
3
4
Interpr
total lia
2009 &
Form
otal liabilit
talAsset
2
2
2
2
tation: In
bilities inc
2010.
la: Total
Tot
ies: Curre
: Fixed
Table
Year
0607
07
08
0809
0910
he years, 2
eased to 0.
0
0.1
0.2
0.3
0.4
0.5
0.6
Liabilities
al Assets
t liabilities
assets+I
4.2.4:Total
TOTA
LIABILIT
872,017
1,559,676
2,719,356
5,183,,36
Graph4.
200607 200
006 & 200
and the ra
4.3 ACT
+ Secured
Loans.
vestment
Liabilitiesr
IEST
,146 2,
,273 3,
,490 5,
,512 8,
.4:TotalLi
08 200809
the total li
tio increas
IVITY
& Unsecur
s+Curren
tio
TALASSET
09,793,13
92,541,50
92,107,12
83,886,03
bilitiesrati
200910
abilities is
d to 0.5 &
ATIOS
d
tassets
ST.L.RA
0.2&0.3 bu
0.6 in the c
IO
0.3
0.4
0.5
0.6
t in the yea
orrespondi
2008 the
g years of
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4.3.1Inventoryturnoverratio
It indicates the firm efficiency of the firm in producing and selling its product. It is calculated
by dividing the cost of goods sold by the average inventory.
Cost of goods sold = Raw materials consumed +payments &benefits to employees +mfr, selling
&admin expenses +duties & taxes
Table4.3.1: Inventoryturnoverratio
S.NO Year
COSTOFGOODS
SOLDAVGINVENTORY I.T.RATIO
1
200607
2,228,549,828
374,102,223
5.96
2 200708 3,499,805,230 506,460,567 6.91
O
3200809 5,324,665,192 746,837,818 7.13
4200910 9,782,463,974 1,432,524,559 6.83
Cost of goods sold
Inventory turnover ratio =_____________________
Avera e inventor
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Interpr
year 20
2009.
year th
tation:
nventory t
07. Then, i
ut, it is dec
t is compa
0
1
2
3
4
5
6
7
8
20
rnover rati
t is increas
reased to
y producti
607
Graph4.3
o is 5.57 t
ed to 6.91
.83 in the
on is also i
200708
.1: Inventor
mes in the
in the yea
ear 2010.
creased. S
20080
yturnoverr
year 2006.
2008 and
Inventory t
bsequentl
9 20
atio
But, it is i
again incre
rn over ra
sales are a
0910
ncreased t
ased to 7.1
io increase
lso increas
o 5.96 in t
3 in the ye
for year b
d.
e
r
y
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4.3.2
Debtor
Sales =
Interpr
times i
&7.25
ebtorst
s turnover
Gross Sale
S.NO
1
2
3
4
tation: D
the year 2
imes in the
Debtors
rnoverr
ndicates th
s
Year
200607
200708
200809
200910
ebtors tur
007 and in
years 200
0
1
23
4
5
6
7
8
turnover
tio: It is f
e number o
Table4.3.
SAL
2,685,4
4,458,2
7,451,0
13,499,8
Graph4.3
over ratio
reased to
&2010.
200607
atio =
und out b
f times deb
:Debtorst
S
6,096
5,779
2,998
7,499
.2:Debtors
s 4.31 tim
.92 times i
200708
_______
Ave
dividing t
tors turno
rnoverrati
AVERAGE
DEBTORS
560,689,8
753,113,3
,158,032,7
,862,113,4
urnoverrat
s in the ye
the year
200809
ales
________
rage Debto
e credit sa
er each ye
D
81
38
67
98
io
r 2006 an
008 and it
200910
rs
es by aver
r.
.T.RATIO
4.79
5.92
6.43
7.25
it is incre
increased t
ge debtors.
sed to 4.7
6.43 tim
.
9
s
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4.3.3Fixedassetturnoverratio
The ratio is supposed to measure the efficiency with which fixed assets are employed a high ratio
indicates a high degree of efficiency in asset utilization and a low ratio reflects inefficient use of assets.
However, in interpreting this ratio, one caution should be borne in mind. When the fixed assets of the
firm are old and substantially depreciated, the fixed assets turnover ratio tends to be high because the
denominator of the ratio is very low.
Sales = Gross Sales
Netfixedassets: Netblock
Table4.3.3:Fixedassetturnoverratio
S.NO Year
SALESNETFIXED
ASSETSF.A.T.RATIO
1 2006072,685,436,096 948,631,374 2.83
2200708
4,458,295,779 1,043,547,559 4.27
3200809
7,451,032,998 1,568,304,581 4.75
4 20091013,499,867,499 1,888,508,475 7.15
Net Sales
Fixed Asset Turnover Ratio = __________
Net Fixed Asset
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Interpr
Fixed a
the yea
tation:
ssets turn o
2008 the r
0
1
2
3
4
5
6
7
8
20062007
ver ratio is
atio is 4.27
Graph
4.3.
200708
2.01 in the
and it cont
3:
Fixed
ass
200809
year 2006
inued up to
t
turnover
200910
nd it is inc
4.75 and t
ratio
reased to 2
7.15 in th
.83 in the
e years 200
ear 2007. I
9&2010.
n
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4.3.4
Interpr
year 20
2.26 i
increas
urrentas
S.NO
1
2
3
4
tation:
Current a
07. But, in
the year
ng.
0.
1.
2.
Curre
setturno
Year
200607
200708
200809
200910
Gr
ssets turno
the year 2
2010. Fr
0
5
1
5
2
5
2006
t asset tur
erratio
Table4.3.
SAL
2,685,436
4,458,2
7,451,03
13,499,8
ph4.3.4Cu
er ratio is
08 the rati
m above
7 2007
nover ratio
: Currenta
SC
AS
,096 1,6
5,779 2,2
2,998 3,5
7,499 5,9
rrentassets
1.68 in th
is increas
we can c
08 200
= _C
setturnove
URRENT
SETS
12,642,497
80,704,176
00,193,294
75,961,025
turnoverra
e year 200
ed to 1.95
nclude tha
09 200
Sales
_________rrent asset
rratio
C.A.
tio
and it is
nd it conti
t current
910
_____
. RATIO
1.67
1.95
2.12
2.26
ecreased t
nuously in
ssets turn
1.67 in t
reased up
ver ratio
e
o
s
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4.3.5
test of
require
Total a
Interpr
Tot
to 1.55
otalasse
This rat
anagerial
in the inter
sets: Fixe
S.NO
1
2
3
4
tation:
l assets ra
in the year
Total
sturnov
o ensures
efficiency a
st of the co
assets +
Year
200607
200708
200809
200910
Graph
io is 0.83 i
2010.It me
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
200
asset turn
rratio
hether the c
nd business
pany.
urrent asse
Table
4.3
SAL
2,685,4
4,458,2
7,451,0
13,499,8
4.3.5:Total
n the year
ns Total
607 2
ver ratio =
apital empl
performan
s + Invest
.5:Total
ass
S
6,096
5,779
2,998
7,499
assetsturn
006 and it
ssets is inc
0708
___
C
yed has be
e. Higher
ents
etturnover
OTALASSE
,809,793,1
,692,541,5
,292,107,1
,683,886,0
verratio
gradually i
eased in e
00809
Sales
________
a ital em l
n effectivel
otal capital
ratio
TS T.
32
08
28
37
ncreased y
ery year.
200910
___
ed
used or no
turnover ra
.T.RATIO
0.96
1.21
1.41
1.55
ear by year
t. This is al
tio is alwa
and reache
o
s
d
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4.3.6
capital
This ra
S.N
1
2
3
4
Interpr
Wo
2007. I
higher
4.3.7
orkingca
A firm m
turnover in
io indicate
Y
20
20
20
20
tation:
rking capit
the year 2
he workin
etasset
pitalturn
y also like
icates for
whether o
T
ar
607
708
809
9101
l turnover
008 increa
capital tur
urnoverr
orking ca
overrati
to relate ne
ne rupee o
r not worki
ble4.3.6:
SALES
,685,436,0
,458,295,7
,451,032,9
3,499,867,
raph4.3.6:
ratio is 2.4
ed to 4.05
nover the
atio
0
1
2
3
4
5
2006
pital turno
t current as
f sales the
g capital
orkingcapi
NET
96 9
9 1,0
98 2,1
99 3,9
Working
c
1 in the ye
. Again it
ore favora
7 200708
er ratio
sets or net
ompany n
as been eff
talturnove
CURREN
SSETS3,684,231
99,700,330
87,920,684
55,216,073
pitalturnov
r 2006 an
ecreased t
le for the
200809
________
Worki
orking ca
eds how m
ectively uti
ratio
T
erratio
it is incre
3.41 in th
ompany.
00910
ales
________
g capital
ital to sale
any net cur
lized mark
.C.T. RA
2.76
4.05
3.41
3.41
ased to 2.7
year 2009
___
s. Working
rent assets.
t sales.
TIO
6 in the ye
&2010. T
r
e
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Net As
S.N
1
2
3
4
Interpr
2007 a
slightly
4.3.8
ets: Net F
2
2
2
2
tation:
Net Ass
d it is incr
in
apitaltur
xed Assets
Year
0607
0708
0809
0910
ts turnove
ased to 2.
reased
noverrat
0
0.5
1
1.5
2
2.5
Net Asse
+ Net Cur
Table4.3.
SALE
2,685,436
4,458,295
7,451,032
13,499,86
Graph4.
20062007
ratio is 1.
3 in the ye
to
o
t Turnover
ent Assets
7: Netasse
NE
,096 1,
,779 2,
,998
3,
,499 6,
.7: Netas
200708
1 in the ye
r 2008. A
2.08
Ratio =
tturnoverr
ASSETS
35,207,71
91,397,00
17,892,86
01,134,46
etturnover
200809
ar 2006 an
d, it decre
in
Sale
________
tio
1.39
2.03
1.95
2.08
ratio
200910
it is incre
sed to 1.9
the
__
N.A.T.RAT
ased to 1.3
in the yea
year
IO
9 in the ye
2009 and
201
r
it
.
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S.N
1
2
3
4
Interpr
2007 a
. Then,
4.3.9
The ra
Y
20
20
20
20
tation:Cap
d it is incr
it increase
reditors
io obtains
ear
607
708
809
9101
tal turnove
ased to 1.
to 2.03 in
urnover
0
0.5
1
1.5
2
2.5
apital tur
y dividing
Table4.
SALES
,685,436,0
,458,295,7
,451,032,9
3,499,867,
Graph4.3.
r ratio is 0
8 in the ye
the year 20
atio
200607
over ratio
sales with
3.8: capital
CAPI
96 2,1
79
2,5
98 3,9
99 6,6
:capitaltur
.98 in the
r 2008 an
10.
200708
= __
he capital
turnoverra
ALEMPLO
70,834,86
11,537,66
79,834,51
63,141,08
noverratio
ear 2006 a
again it is
200809
________
Capital
mployed.
io
ED
nd it is inc
increased t
200910
ales
________
Employed
C.T.RAT
1.24
1.78
1.87
2.03
eased 1.24
o 1.87 in t
IO
in the ye
e year 200
r
9
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The r
S.N
1
2
3
4
Interpr
and it
2009 b
tio obtain
Y
20
20
20
20
tation:
Credito
s suddenly
t increased
d by dividi
ar
607 1,
708
809 4,
9108,
rs turnove
decreased
in the nex
0
2
4
6
8
10
12
2
reditors t
ng the ann
able4.3.9:
PURCHASE
22,358,58
,244,170,1
86,818,72
25,662,26
Graph4.3.9
r ratio is 6.
to 5.1 in t
year 2010
4.4
00607
urnover ra
al credit p
reditorstu
SC
5 19
72 44
1 59
5 7,
:Creditorst
1 in the ye
e year 200
to 11.47.
ROFITAB
200708
io = ____
rchases wi
noverratio
VERAGE
EDITORS
2,242,196
1,904,975
1,059,052
81,427,12
urnoverrati
r 2006. It i
and it sud
ILITYRATI
200809
________
Avge.
h average
o
s increased
denly incr
OS
200910
urchases
_______
reditors
ccounts pa
C.T.RATI
7.4
5.1
6.9
11.47
to 7.4 in t
ased to 6.
yable.
O
e year 200
in the ye
7
r
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4.4.1Grossprofitratio
This ratio shows that the margin left after meeting manufacturing costs. It measures the
efficiency of production as well as pricing.
Gross profit= Net sales-Cost of goods sold
Cost of goods sold= Opening stock+ material consumed+ mfg .exp- closing stock
Table4.4.1:Grossprofitratio
S.NO YearGROSSPROFIT SALES G.P.RATIO(%)
1 200607 456,886,268 2,685,436,096 17
2 200708 958,490,549 4,458,295,779 21.5
3 2008092,126,367,806 7,451,032,998 28.5
4
2009
10
3,717,403,516 13,499,867,499 27.5
Gross profit
Gross profit margin Ratio = ____________ X100
Net sales
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Interpr
F
to 17
decreas
activiti
tation:
rom the ab
&21.5%
ed to 27.5
s.
1
1
2
2
3
ove we can
in 2007&
% in the
atio
2006
Graph
say that gr
2008 and a
ear 2010.
07
4.4.1:Gros
oss profit r
gain it inc
The com
00708
profitratio
atio is 16.2
eased to 2
any is ma
200809
% in the ye
8.5% in t
intaining p
2009
ar 2006 bu
e year 20
roper cont
10
it increase
9 and it
ol on tra
d
s
e
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4.4.2
conditi
face fall
Interpr
During
becaus
5.3 in t
4.4.3
Netprofi
ns. A firm
ing selling p
S.NO
1
2
3
4
tation:
the year 2
of decreas
e year 200
perating
tratio:T
ith a high
rices, rising
Ye
2006
2007
2008
2009
06 the net
ed in admi
8 and it ag
expenses
8
6
4
2
0
2
4
6
8
20
Net pr
his ratio als
net margin
costs of pro
Ta
r
07
08
09
10
Graph4.
profit mar
istration a
in increase
ratio
607 2007
fit ratio=
indicates t
ratio would
duction or d
ble4.4.2:N
PROFITAF
TAX
86,900,5
238,465,7
470,434,5
9,436,315,
.2:Netpro
in is 0.7 it
d selling e
d to 6.3 in
08 200809
Net pr
______
Net sal
e firm's ca
be in an ad
eclining de
tprofitrati
ER
63
2,6
30 4,4
75 7,4
11 13,
itratio
suddenly i
xpenses. In
009 and to
200910
fit
__ X I00
es
acity to wit
vantageous
and for the
SALES
85,436,096
58,295,779
51,032,99
99,867,49
ncreased t
the next y
6.99 in the
stand adve
position to
product.
NET
MAR
6
3.2% in t
ar, it again
year 2010.
rse econom
urvive in t
PROFIT
GIN(%)
.2
.3
.3
.99
e year 200
increased
c
e
7
o
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The Operating expenses ratio explains the changes in the profit margin ratio. A higher operating
expense is unfavorable since it will leave a small amount of operating income to meet interest, dividends.
Operating expenses X 100Operating expenses ratio= __________________
Sales
Operating expenses =Admin expenses+ Selling expenses
Table4.4.3: Operatingexpensesratio
S.NO YearOPERATING
EXPENSESSALES O.E.RATIO
I
1200607 376,620,609 2,685,436,096 14.02
2 200708 550,626,756 4,458,295,779 12.35
3 200809 767,790,197 7,451,032,998 10.30
4
200910
1,388,735,777 13,499,867,499 10.30
Graph
4.4.3:Operating
expenses
ratio
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Interpretation:
Operating expenses ratio is 17.86%of sales in the year 2006 it decreased to 14.02% in
the year 2007 and decreased in 2008 to12.35% and again it decreased in the next year 2009 to
10.30% and continued the same way. Then, it reached 10.30% in the year 2010.
4.4.4ReturnonInvestment
The conventional approach of calculated ROI is to divide PAT by investment.
EBIT
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Table4.4.4:Returnoninvestment
S.NO YearEBIT
CAPITAL
EMPLOYEDR.O.I.RATIO
1 200607 137,259,583 2,170,834,866 0.06
2 200708 386,899,738 2,511,537,662 0.15
3 200809 742,908,741 3,979,834,518 0.19
4 200910 1,588,690,299 6,663,141,085 0.24
Graph4.4.4: ReturnonInvestment
0
0.05
0.1
0.15
0.2
0.25
200607 200708 200809 200910
Interpretation:
Return on Investment is very low in all years. But, in the year 2006, it reached to
6.51 due to less earnings.
4.4.6Returnonequityshareholdersfund
The return on equity share holders fund explains about the return of share holders with they
get on their investment.
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Table4.4.6:Returnonequityshareholder'sfund
S.NO Year PROFITAFTER
TAXNETWORTH R.O.E.RATIO(%)
1 200607 86,900,563 1,806,848,671 4.8
2 200708 238,465,730 2,012,852,920 11.8
3 200809 470,434,575 2,436,657,677 19.3
4
200910
943,631,511
3,331,014,470
28.33
Graph4.4.7:Returnonequityshareholder'sfund
Net profit
Return on equity share holders fund= _________________
Equity share holders fund
0
5
10
15
20
25
30
200607 200708 200809 200910
Interpretation:
Return on equity in the year 2006 is 0.8 and it increased suddenly to 4.8 in the year 2007
and again it increased to 11.8 in the year 2008. Return on Equity of the company is at
satisfactory level and then it increased to 19.3 in 2009 and again increased to 28.33 in 2010 .
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CHAPTER-5
Findings
Suggestions
Conclusion
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Page 68
FINDINGS
Except in the year 2008, the company is maintaining current ratio as 2 and more, standard
which indicates the ability of the firm to meet its current obligations is more. It shows
that the company is strong in working funds management.
The company is maintaining of quick assets more than quick ratio. As the company
having high value of quick ratio. Quick assets would meet all its quick liabilities with out
any difficulty.
The company is failed in keeping sufficient cash & bank balances and marketable
securities.
In above all current assets and liabilities ratios are better that also it is double the
normal position. Observe the absolute & super quick ratio the company cash
performance is down position.
In the year 2006 debt equity ratio is 0.08 (8%) but it is increased to 0.11 (11%) &
0.16(16%) in 2007 and 2008 increased every year. It shows that the company is losing
its condition.
Net working capital ratio is 0.45 in 2006 but also 0.50 in 2007. It is increased very highbut condition of business working capital is not shortage .
Debt Equity ratio is increasing every year. It indicates the company depends on the debt
fund increasing.
Total liabilities ratio is also increasing year by year.
In the year 2006, the interest coverage ratio 7.56 which increased to 94.76 in the year
2007 and high fluctuations in the followed years. In this position, outside investors are
interested to invest their money in this company.
The company is declining of its coverage ratio to serve long term debts.
Inventory turnover also increased for year by year that is company production is also
increased. Subsequently sales are also increased.
The net profit ratio of the company increasing over the study period. Hence the
organization having the good control over the operating expenses.
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Page 69
SUGGESTIONS
The company has to increase the profit maximization and has to decrease the operating
expenses.
By considering the profit maximization in the company the earning per share, investment
and working capital also increases. Hence, the outsiders are also interested to invest.
The company should maintain sufficient cash and bank balances; they should invest the
idle cash in marketable securities or short term investments in shares, debentures, bonds
and other securities.
The company must reduce its debtors collection period from 83 & 84 days to 40 days be
adopting credit policy by providing discounts to the debtors.
Return on investment is fluctuates every year. The company has to make efforts in
increasing return on investments by reducing its administration, selling and other
expenses.
The company should increase its interest coverage ratio to serve long term debts.
The net profit of the company is increasing over the study period. Hence the organization
maintaining good control on all trees of expenses.
The dividend per share has observed as raising trend over the study period, hence it may
be suggested Amara Raja Batteries Limited should take key interest to maximize the
share holder wealth by increasing dividend pay out.
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Page 70
Conclusion
Liquidity ratios, both current ratio and quick ratio are showing effectiveness inliquidity as in all the years current ratio is greater than the standard 2:1 and quick ratio is
greater than the standard 1:1 ratio.
The firm is maintaining a low cash balance and marketable securities which means theydone cash payments.
Debt equity ratio, solvency ratio and interest coverage ratio are showing an averageincrease in the long term solvency of the firm.
The proprietary ratio is showing an average inc